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J Sainsbury's Â£3.4bn (â¬4.9bn) pension fund has undermined a second private equity bid for its parent in nine months, after the Qatari-backed investor Delta Two walked away from its Â£10.6bn offer for the company this morning. The deal marked one of the first times trustees had been directly and formally brought into negotiations over a takeover approach.

In a statement, Delta Two said its decision "reflected a combination of factors including the deterioration of credit markets which impacted the terms of lending ... and the arrangements for the future funding of the Sainsbury pension schemes."

A source familiar with the talks said it was the highly leveraged nature of the private equity bids that had worried the trustees, despite the scheme's relatively small deficit of £55m under the IAS19 accounting benchmark.

A less indebted company can be expected to meet the risks that pensioners will live longer than expected, that investments may underperform, and that inflation and interest rates will rise, he said, but in a highly leveraged company, the creditor banks have first call on cashflow.

Shares in the UK's third-largest retailer plunged 105.5p, or 19%, to 449.5p as of 11:06 GMT this morning, following the failure of what would have been one of Europe's largest buyouts.

The pension trustees, led by John Adshead, also helped derail a bid for Sainsbury's by a private equity consortium led by CVC Capital Partners in March. They said a leveraged bid would force them to invest in safer, more conservative assets, leading to a pensions funding deficit on the order of £2bn to £3bn.

That attempt to acquire the retailer was ultimately defeated by the Sainsbury family, who hold about 18% of the company between them and refused to accept the offer.

Richard Jones, a principal at consultants Punter Southall said: “The implication is that the Trustees stuffed the deal. However, the Sainsbury family, who effectively had a blocking vote, said that they would not vote for the deal unless the Trustees’ demands were met. This meant that they effectively had to cede to the Trustees opening gambit in order to get the Sainsbury family to vote for the deal.”

Delta Two still has a stake of about 17.8% in J Sainsbury, according to data provider Thomson Financial, and Paul Taylor, chief executive of the investment group, said his company "remains fully supportive of management's operational strategy."

Justin King, chief executive of the retailer, said: "Interest in Sainsbury's has been borne out of the company's success to date in implementing its recovery strategy."